The movement that first coalesced in Seattle at the anti-World Trade Organization demonstrations last December and recurred in Washington, D.C., in opposition to the World Bank and International Monetary Fund in April does not, of course, speak with one voice. It is a coalition involving unions, environmentalists, consumer groups, and religious communities, each with its own emphasis. But one element that links these groups is the belief that international trade is injurious to the poor and of benefit primarily to the wealthy. Activists who oppose "globalization" want to stop or at least slow the process of freer trade. In its place, many advocate greater economic self-sufficiency for the world’s poorest nations.
Economically and morally, however, the case against globalization is weak. During the last two decades the expansion of trade has been closely associated not simply with third-world economic growth, but with significant improvements in human welfare and the alleviation of poverty and suffering. To be sure, advances in well-being have not been as rapid or extensive as they should be. Much remains to be done to overcome the poverty and internal inequalities that blight poor nations. Nevertheless, the economic progress made in the last few decades by the poor around the world has been substantial. What concerns me, as an economist and an activist, is that the antiglobalization coalition opposes a process of economic development that has proven itself to be crucial to overcoming deprivation in the third world. In its place, the protestors advocate an economic experiment that has virtually no track record and possesses serious theoretical flaws. Left-leaning critics of globalization, such as the journalist and author William Greider (One World, Ready or Not), concede that the goal of national self-sufficiency "has been advocated for many years, but the truth is there are still not many living examples of success" (The Nation, April 10). Greider and others, such as Ralph Nader and Lori Wallach, director of Global Trade Watch, hope for more success once "the global rules change." But there is a serious problem associated with asking the world’s poor to wait for new global rules to be adopted, rules whose formulation is vague and prospects for enactment slight. Seen from this perspective, opposition to globalization seems morally obtuse. Opponents of trade are advocating a model of development that historically has not worked well to reduce poverty while urging the dismantling of one that, even with its flaws, has improved the lives of millions.
In short, liberalized trade has a track record of achievement in advancing living standards that is impossible to deny. There is a very strong and clear association between levels of economic development (GNP per capita) and a country’s level of exports per capita. The countries that export the most have the highest output per person.
Globalization is associated with improvements in overall human well-being. The UN has long been in the lead in developing direct measures of human welfare.
A genuine concern about improving human well-being means not dismissing the role of international trade in increasing living standards. Moreover, if international trade is important for big nations such as Mexico and Turkey in their efforts to reduce poverty, it is indispensable for small ones. Because of their small size, most underdeveloped countries are unable to provide markets large enough to achieve the efficiencies associated with large-scale economic production. For them, attaining high levels of productivity is impossible without exports. Globalization holds out the promise of economic advancement for poor countries because it allows production of the world’s goods to be dispersed geographically in a way that never before was the case. With export sales of manufactured goods come jobs, rising income levels, and enhanced well-being. Without international trade poor countries have little chance of improving potential income levels and HDI scores.
Are there social costs? Yes. Globalization brings dislocations in both poor and rich nations. These disruptions must be managed in order not to burden those least able to adjust. In underdeveloped countries, globalization attracts workers from the countryside to already crowded urban centers because the wages offered in export manufacturing are higher than those paid for farm work. Both those who relocate and those who remain in agriculture need assistance-the first with regard to the social amenities of urban life and the second concerning the need to reorganize agricultural production with a much depleted supply of labor. Governments and international organizations have an important role to play in aiding workers and industries undergoing such transformations.
In developed countries like the United States, similar problems arise. Low-wage workers are displaced when industries move their operations to poor nations looking for cheaper labor. Not only are jobs lost, but firms that remain face pressure to reduce costs by lowering wages. What may ensue is "a race to the bottom" in wages, at least for some workers.
As a society we should not participate in such a race. There are better ways to respond to the relocation of industries associated with globalization. The fact is that most of the low-wage occupations involved in any "race to the bottom" also perpetuate working-class poverty. It is better for all concerned that such occupations shift to countries still in the rudimentary stages of industrialization. When such jobs move to poor countries, they raise the overall wage structure. Attempting to retain them in the United States only increases the already growing number of working poor. Instead of trying to protect such occupations, those who want to speak and act on behalf of low-income workers should make a very different case. A high proportion of U.S. workers currently paid poverty wages have the potential to fill higher wage occupations. Education, re-training, and at least temporary income support are necessary for them to be able to do so. Tax incentives for employers who encourage the creation of better-paying jobs is the sort of public policy we should be pursuing. Holding on to low-paying industrial jobs through protectionist measures is not good for American workers and is probably futile in the long run as well.
In addition to these domestic adjustments to offset the upheavals caused by globalization, reform is needed at the international level, especially in financial or capital markets. Globalization is premised on expanded trade, but trade liberalization does not require giving a free hand to financial speculators. Where the unconstrained activity of financial managers does more harm than good, their activity should be regulated. The new information technology has facilitated an enormous growth in global financial activity. Money managers now move vast amounts of capital across national borders, looking for better returns on their investments. Financial managers can exit from a country as quickly as they arrive. When, herd-like, they leave, the devastation in the form of defaults and bankruptcies can bring down all but the strongest economies. This is what happened to Mexico, Russia, and Asian countries in recent years. It is true that in Asia the economic downturns that were experienced in 1997 and 1998 have already been reversed. But their impact was severe.
Stable growth in the global economy requires that currency and financial-market speculation be reduced. The most sensible suggestion in this regard is the Tobin Tax, initially proposed by the Nobel Prize-winning economist James Tobin. This scheme would "put sand in the wheels" of cross-border financial flows by taxing all such transactions. The rationale behind the tax is that it will reduce the incentive speculators have to shift their funds in response to small movements in interest rates or dividends. Numerous other proposals in this regard have been floated. Unfortunately, none has received the endorsement of the United States, even during the Clinton administration which has maintained a Reaganesque opposition to interfering in global markets.
Critics of globalization also warn that consumption-based-and specifically U.S.-led-economic growth is ultimately destined to fail. Greider, for example, points out that the United States imports much more than it exports, and that the difference between the two essentially represents a kind of loan extended by the rest of the world to us. At some point such loans will no longer be offered and repayment will be demanded. Unwilling to offer additional credit, overseas exporters will reduce their sales to the United States, raising the question for third-world producers, as Greider puts it, of "who will buy all this stuff?" In this scenario what follows are massive devaluation of the U.S. dollar and worldwide economic depression.
Greider and others are right about the need for change in the way the United States consumes the world’s resources and goods, but he is excessively alarmist. The apocalypse that he foresees in all likelihood will not materialize. The value of the European Union’s imports from low- and middle-income countries, for example, is virtually the same as what the United States imports. In 1998 Europe imported $339.5 billion of goods; the United States $335.2. Add to these figures Japan’s $102.5 billion of imports, and the U.S. role in the world economy is put in better perspective.
Furthermore, our trade imbalance can be corrected in ways far short of the kind of cataclysmic event that Greider portrays. A recent study by Catherine L. Mann concludes that Greider and others are right, the U.S. trade imbalance is not sustainable. Mann, however, thinks a further embrace of globalization, not a retreat from trade, is the best remedy. A liberalizing of the international market for service industries, Mann argues, would help correct the problem. The United States is in a particularly strong position to export services in travel, transportation, education, finance, and business.
If the prospect for redressing the trade imbalance is relatively good, the problem of establishing global environmental and labor standards is more complicated. In principle, both are desirable. Environmental damage resulting from the unconstrained pursuit of private profits poses an intolerable risk to future generations. At the same time, labor markets without the ability of workers to bargain collectively are simply unfair: individual workers are no match for giant corporations. On both fronts there is a need for reform to be achieved through international agreements, in one case to secure environmental viability and in the other to strengthen the right of workers to organize unions.
In advocating labor and environmental standards, the antiglobalization movement wants to use trade as a hostage. It calls for the United States to withhold trade privileges as a means to secure compliance. In defending such unilateralism, the movement has been remarkably insensitive to the impression created when the United States, a nation that has hardly been exemplary with regard to either environmental or labor issues, is seen to be dictating to the rest of the world. Skepticism among third-world countries is not unreasonable. As Youssef Boutros-Ghali, the Egyptian trade minister, has put it, "Why, all of a sudden, when third-world labor has proved to be competitive, do industrial countries start feeling concerned about our workers?"
Indeed, the actions of the United States itself provide much of the basis for the belief-quite widespread in the third world-that disguised protectionism motivates the antiglobalization movement’s labor and environmental demands. We have not ratified six of the seven International Labor Organization (ILO) Conventions that constitute the content of the core labor standards. And the fact that less than 10 percent of our private-sector labor force belongs to unions hardly commends this country as a champion of labor rights. Similarly, the United States is almost always a laggard in multilateral negotiations concerning the environment. To cite just one example, we still do not adhere to the Basel Convention that bans the export of hazardous waste to developing countries. Shouldn’t the United States clean up its own act before it demands that others, especially poorer countries just now scrambling onto the ladder of material progress, accept labor and environmental standards? Until we can present ourselves as more of a model of labor and environmental responsibility, the antitrade movement’s demands will continue to look very much like a smokescreen hiding an effort to raise production costs outside this country.
More important, the imposition of trade sanctions will hurt the working class in poor countries and inhibit the ability of labor to unionize much more than it will damage the corrupt leaders of such nations or multinational corporations. Trade creates jobs without which there are no unions. Without unions, in turn, an effective counterweight to elite dominance is lost. Similarly, withholding trade privileges will not advance environmental protection. Cutting trade deflects attention from the major sources of environmental damage globally-the economically advanced countries-while at the same time depriving poor nations of the wealth and technology necessary to reverse the ecological damage for which they are responsible.
Hard as it is for many well-meaning people to see, labor and environmental standards should be dissociated from trade talks. Global trade in and of itself is a good thing for the world’s poor and should not be used as a bargaining chip to achieve other desirable objectives. Multilateral agreements are necessary to secure adherence to global rules concerning labor and the environment. Such adherence will require strengthening institutions such as the International Labor Organization and the United Nations Environmental Program. Just as movement toward a rule-based global trading system was achieved with the establishment of the much-derided World Trade Organization, similar advances can be secured by codifying and enforcing international rules concerning labor rights and the environment. Those who want to help workers in the third world and protect the environment should be working diligently to elect people to Congress who will support such international agreements.
The tragedy, then, is that those who oppose globalization and claim to speak on behalf of the poor and the powerless do so in a way which stands in almost perfect contradiction to the interests of the disenfranchised. That globalization possesses the potential for raising standards of living in an ever more integrated world economy is something that those who demonstrated in Seattle and Washington, D.C., have not yet come to terms with. As a consequence, many of these well-intentioned individuals would put trade and the progress it represents at risk in the service of an ill-founded American unilateralism. This must be rethought. Until the movement’s hostility to globalization is reversed, it cannot help the world’s poor.
